Bumper month for US car sales may lift stocks - The week ahead on Wall St

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SHARES of US automakers may finally be able to accelerate. Investors are closely awaiting this week’s May sales data, expected to come in near record levels.

Meeting those forecasts could be enough to lift the sector – among the cheapest in the market – putting the sting of product recalls and tepid recent growth in the rear view mirror.

Estimated sales of 1.6m new cars and trucks in May would make for a seasonally adjusted annual rate of 17.4m vehicles, according to Edmunds.com, a car buying platform.

“This is going to be one of the best months ever,” said David Kudla, chief investment strategist of Mainstay Capital Management in Grand Blanc, Michigan. Kudla sees May sales approaching $40bn, not far from the $40.3bn record in August 2014.

Weak auto results contributed to flat overall retail sales in April, but May is expected to show a rebound. Lower gas prices could boost demand for sports utility vehicles and trucks, which have higher price tags and better margins.

There is also pent-up demand for new vehicles as consumers have been holding on to their cars for longer since the crisis. The average age of US cars is now between 10 and 11 years, Kudla said.

While auto stocks could rally if the sales come in as expected, it could spell bad news for the broader market, as any sign of consumer strength could nudge the US Federal Reserve into raising interest rates more quickly that anticipated. Analysts expect the first rate hike to come later this year, but opinions are split on the date.